Win or lose, Nintendo Switch heralds a big change for the 127-year-old company

The Nintendo Switch is both a TV and a portable video game console.
Nintendo

The general feeling among fans and industry-watchers alike is that the Nintendo Switch, the $299 console launching on March 3rd, is a make-or-break moment for the 127-year-old company.

Success would validate Nintendo's strategy of building unique, sometimes gimmicky consoles that are like nothing else on the market.

But delivering another flop, following its previous new product disappointments, would heighten investor pressure on Nintendo to get out of hardware entirely.

And yet, the bar for the Switch's success is shockingly low. The Nintendo Wii U, the immediate predecessor to the Switch, sold a mere 13 million units in its four-year lifespan. Anything that tops that fiasco would be a marked improvement for Nintendo.

Meanwhile, as VentureBeat reports, analysts are lukewarm on the Switch. While the console's $299 price tag and Nintendo's deep bench of blockbuster franchises (like "Super Mario" and "The Legend of Zelda") are reasons to be optimistic, the limited number of game titles expected to be made for the Switch and the unproven, TV-mobile hybrid form factor of the console are potential minuses.

Here's the thing, though. There's a growing sentiment among the investor community that the success or failure of the Switch is almost irrelevant to the huge, bright, shiny future they see for Nintendo. The problem is that gamers might not like what those investors are seeing in their crystal ball.

Take a licking and keep on ticking

The markets haven't been very kind to Nintendo in the last 12 months or so, beyond just the ongoing drag from the Wii U business. Here's a brief list of all the times Nintendo stock took a big hit in the last few quarters:

So what's making financial analysts so bullish, even as the stock suffers?

What the future holds

It all comes back to the smartphone.

Back in October, after "Super Mario Run" was announced but before the debut of the Nintendo Switch, Nomura upgraded its rating on Nintendo's stock to a "Buy." The firm said that the company's willingness to dabble in smartphones "heralds a change in earnings structure at Nintendo." By Nomura's reckoning, the profitable smartphone games will "provide support" to the console business, meaning that Nintendo can have its console cake and eat it too.

But some, like Jefferies Equity Analyst Atul Goyal, go a step further: "Nintendo's long-term outlook is driven by the [intellectual property]," Goyal tells Business Insider. In other words, he says, the future of Nintendo rests on its ability to monetize its most popular franchises, starting from "Super Mario Run" and "Pokémon Go," and going well beyond.

Game on

So yes, if the Switch is a massive flop, you might see Nintendo make a huge and dramatic shift towards smartphone games. But even if the Switch is a huge success, there's a healthy chance that smartphone games will still prove to be more lucrative, and so Nintendo will focus more of its efforts there regardless.

And while Nintendo's first "Super Mario" smartphone game didn't generate the kinds of profits that Wall Street was looking for, the company has committed to trying and trying again, with the free-to-play "Fire Emblem Heroes" dropping for Android on February 2nd and iPhone later.

"Super Mario Odyssey"
Nintendo

The good news for die-hard Nintendo console gamers is that the likely long-term success of Nintendo's smartphone efforts will actually reduce investor pressure on the company to move away from its hardware business. The potential downside is that if Nintendo's iPhone and Android games business really picks up, the company's hardware business will naturally become a smaller area of focus, which could result in a diminished number of console games.

Either way, the Nintendo Switch is shaping up to be at least a moderate success. But taking the long view, this console may turn out to be a small piece of a much different strategy for Nintendo.